Search

Notes on Principles by Roy Dalio


Explore Bridgewater’s “Daily Observations”


1. What do I want?

2. What is true?

3. How does #2 help me achieve #1?


Story on page 18 – dealing with electricity and getting a shock. Lessons learned.


Aggressive to make money. Defensive to keep it. Too much of either or mismatched is probable failure.


What are people doing? Enjoying? Investing are all based on short-term beliefs.

What do greater fools believe?

Prices are based on recent experiences and expectations.

Results are based on facts and past experiences.

What do I believe will be the long term outcome?


How do I know I’m right? Do other believable people think differently?


SN: Make a collection of Operating Principles, aka Guiding Principles. A meaningful life comes from having meaningful experience and work. Those planned and those unplanned.

SN: Embrace the design of failure to insure the strength for success.


1. Seek views from all sides.

2. Know when to have an opinion and when not.

3. Develop tests, timeless principles, systems.

4. Balance risks, big upside, protecting downsides.


SN: Develop a connection to those things you enjoy that earn money. Make it a game or ritual you can enjoy. Make it fun. Find the fun in learning more.


Dalio’s “Meritocracy”. Thoughtful disagreements, explore opinions and weigh in whereas their contributions are weighed by their proportionate merit.


To do anything exceptionally well, you have to push limits, go through difficult trials, and except the hardships and failures that come with the work of improving yourself to become really good.


Past Quote: We are both the sculptor and marble.


SN summary of RD section: There’s a difference between bad forecasting and good decision making. The worst forecasting is based on points on a graph and trying to predict the swing trade. Decision making is based on events that move charts. Ask yourself “What are the rules that effect macroeconomics?” Think in 22 year generational changes. Children; Rebels; Patriots & Presidents and Lions & Legends.


SN: What are the principles you uphold in making a decision to taking action?


RD: You can anything you want, you just can’t have everything you want?


Any “sure thing” can be wrong. Proper diversification protects downsides.


Beware of Obsessive Mentalizing (over thinking everything)


RD: Making good uncorrelated bets that are balanced and leveraged increases opportunity and decreases risk.


RD: Three Rules of Team Leadership.

1. Honest thoughts on the table

2. Respectful debate and willingness to change your mind.

3. Solid method of deciding in situations where the answer wasn’t found.

Cash is the worst investment over time.


KNOW WHAT THE BEST DECISIONS ARE AND HAVE THE COURAGE TO MAKE THEM.


RD: Dreams + Reality + Determination = A Successful Life


SN: Map your journey. Maintain a Stoic outlook with reflection + make constant progress + keep a strong constitution = Happiness


RD/SN: Do you want to change the World or find your place in Harmony with the World?

Do you want to serve Humanity or savor your Human experience?


Finding truth requires open mindedness and transparency.


Freud: Love and Work are the cornerstone of our humanness.


“No Pain, No Gain” – A Universal Truth

If you’re not pushing your limits, you’re not trying hard enough to learn. Have the courage to face weakness, anything less is unproductive.

Pain is between you and what? Health, Fitness? It’s a false wall – a trick, a fool’s laziness to think it’s too much trouble to be healthy? Don’t fail the test of intelligent decision making.


Quality of Work RD: The importance of knowing who you’re working with and dealing with. Use of Meyers Briggs.


SN: Poor opinion of MB analytics because it’s disillusion self-evaluation.


Imagine Einstein playing basketball because it was okay, easy, encouraged, or necessary. Some people use the 10,000 foot view, others a microscope, some 360 degrees. Each believe their viewpoint is best.


3 common paths in management:

1. Find others that can do it better.

2. You doing it better.

3. You doing it poorly.


RD: There is a universal truth that you must be willing to sacrifice pleasing others (or disappointing them) in order to achieve great things – even philanthropic goals.


SEE graph page 110 and 158

See all things in circles and cycles, take note cause and effect relationships during and between stages.


RD: Life offers many decisions to make, many opportunities to cycle through, diagnose them well and have a terrific life.


1. Have clear goals in mind that are realistic and in harmony with who and what you want

2. Identify what’s between you and the goals.

3. Accurately identify the problems – roots to problems.

4. Design a plan around the problems.

5. Do what is necessary.


Keep each separate in your thinking, separate in your action. One thing at a time. Don’t confuse goals with desires. A goal might be fitness, but a desire is to eat whatever you want must be managed separately.


Beware allowing yourself to be the sole viewpoint and repairman. You have weaknesses and your patterns reveal them.


Overcoming weaknesses…You can:

1. Deny them which is what most people do.

2. Accept them and try to improve them.

3. Accept and find ways around them.

4. You can change what you want so your weaknesses are hidden.

5. Get help. Design a machine and hire experts.


What’s the one big thing standing between me and the ability to achieve my goals?


The Brain is like the Body. You can build muscle and have wounds. You have a powerful part and weaker one. Some parts can improve, others are like bones.


What are common delusional concepts?

1. Impulsive decision making based on desired outcome and manifesting the appearance of success.

2. Our viewpoint is the only one that matters, makes sense to us. Although we concede to others, we seldom conceded our way of doing things.

3. Poor relationship between what we think we know and reality/humility. Open-minded to ideas and possibilities but not probability and sound advice.

4. Poor synthesizing enough good data into an accurate picture.

5. We fail to seek or follow good advice that contradicts what we already believe is right for us.

6. Poor understanding between desires, goals and purpose, viewpoints versus facts. Our view versus collective views, self-interest versus collective interest and we constantly justify ourselves, making compelling arguments trying to convince others of our viewpoint.

7. Poor ability to truthfully identify facts, forecasting with good intelligence and realities. Predicting likely outcomes and managing risks adequately. Failing to anticipate and prepare for the downside. Allowing our fears, inspirations, beliefs, desires, dreams and fantasies to override the objections of others.


See where you came from.

See why you had to fail.

Accepted reality.

See what ONE-BIG-THING stood in the way.

Make the hard decisions required.


What else stands in my way? What advice have you sought and ignored?


RD concept: Spirituality is being able to rise above yourself, your circumstances, views, desires, goals and see yourself as a part of God’s universe. One cell, one life system, one planet, one solar system, one universe.


Don’t let the sub-conscious you as the machine undermine what the conscious you wants to do with the machine. Let the sub-conscious mind stretch elsewhere: adventure, outdoors; nature.


Cramming more into the conscious mind to make it work harder is counter-productive to being at your best and allowing the sub-conscious mind to contribute. Clear your head and your environment and allow the sub-conscious mind to offer creative ideas which the conscious mind and fully examine which are useful and which are fantasy.


Know there is a constant battle between your emotional feelings and your rational thinking.


Understand the power of habits.


Ray’s Challenge: Write down 3 bad habits. Break one starting today.


1. Learn everything useful (80/20 rule, by-and-large rules). Sort, look at history, guiding principles, informed and believable mentors. Measure cause and effect, ask yourself what will happen on the downside and when human nature will disappoint you. SN: Look 10,000 feet, 360 degrees and 6 feet under.

2. Decide, make the decision and push forward to success.


Carl Jung: “Until you make the unconscious conscious, it will direct your life and you will call it fate”


RD example:

I want meaningful work.

I want to be a Doctor.

I need to go to medical school

I need good grades.

I need to study tonight.


Don’t mistake Possibilities with Probabilities. We are programmed to dream about endless possibilities, anything is possible, ignoring probability and taking a proven path.


Any choice and decision has a way to fail. Anyone can find something wrong with an idea. Poor decision makers use this as a reason to ignore the facts and probabilities. (like me, investing in the stock market).


Artificial Intelligence insight, see page 260. Common sense and AI: see page 261

Never over estimate AI and under estimate importance of deep knowledge.